Six months ago, the nation prepared itself to step off the fiscal cliff. Not much liking the rocky landing back in September, the day of reckoning was delayed but now both the moratorium on tenant evictions and JobKeeper support have run their time and March 28 is D-Day.
It’s reasonable to expect that there will be some degree of pain but those six months have bought valuable extra time for the economy to find its feet and businesses and workers to gradually wean themselves off a reliance on government intervention.
There are plenty of economic indicators that give cause for optimism. Unemployment, while still high, is trending downward, registering at 6.4 per cent in January this year. And the number of workers on JobKeeper has been dropping rapidly as many businesses return to something approaching normal.
Every state bar Victoria recorded at least a 60 per cent fall in the number of workers on JobKeeper in the December quarter. That is heartening but doesn’t mask the fact that around 1.6 million JobKeeper recipients may soon be added to the tally of unemployed.
That’s a figure that weighs heavily on landlords, many of whom have also borne the financial pain of deferred or reduced rent. NSW Better Regulation Minister Kevin Anderson has said there will be a six-month transition out of the rental eviction moratorium during which tenants and landlords are encouraged to negotiate payment plans for arrears.
He has promised more detail about the scheme but right now there is scant information about how it will work and just how landlords and property managers should define “good faith” negotiations and exactly what “fair and reasonable to evict” looks like when a tenant is unable to pay arrears or rent but is nonetheless still impacted by COVID-19.
In Sydney’s rental market generally, properties that offer house and garden or proximity to the beach, are experiencing vacancy rates hovering around 1 per cent, while apartments in the inner-city and dense suburban locations continue to be out of favour.
The City of Sydney vacancy rate was 6.2 per cent in January, down from a peak of 16.2 per cent in May last year but still representing a lot of vacant apartments, delivering no income to their owners.
Wolli Creek in Sydney’s south hit 7 per cent vacancy in August and while our R&W office is witnessing a return of tenants from their northern beaches sojourn, the 6.2 per cent January vacancy rate is still way off the ideal.
With the loss of JobKeeper many of these tenancies will be at risk and with a high level of vacancy, tenants will continue to be in the box seat to negotiate more favourable rental terms.
Many landlords responded to the call to negotiate rent with tenants, either motivated by an altruistic sense that “we are all in this together”, or the harsh economic reality that reduced rent was better than no rent.
Renters who remained in work found themselves in the rare position of being able to upgrade their rental digs at little or no extra cost, swapping one bedroom for two bedrooms or a boxy apartment with no amenity for better provisioned premises.
Some opted for a tree change or sea change in regional locations where pre-pandemic you could find a rental at a big discount to Sydney prices. Not anymore. An escape to the country for a bit of rent relief is no longer an option and it’s hurting many of these regional communities as prices take off on a steep vertical.
I’ll take a deeper look at the regions when it becomes clearer whether the drift away from the capitals is permanent or an opportunistic but temporary shift for the duration of remote work.
In the meantime, investors with apartments in the less desirable capital city locations will be weighing their options as the March 28 deadline looms.
With a red hot property market in Sydney and Brisbane it will be tempting for landlords staring down reduced rental income – or no income at all – to cash in now while buyers outnumber available properties by a significant amount.
This will be good news for agents who simply can’t meet the surging demand for property but a flood of homes might just put the lid on runaway prices. Not such a bad thing.
Those with a longer-term view of their investment and a belief that the demographic shift away from the capitals is a passing fad may still need to try a little harder to attract and retain a quality tenant.
Not everybody quit their rental because of the cost. Many found their homes decidedly unhomely when they had to spend 24 hours a day cooped up in a charmless cube in need of some TLC. Capital improvements to a rental property might not always show an immediate return but in locations where renters have plenty of choice it may be the only option.
So far in this pandemic the recovery phase has gone better than even the most optimistic predictions. Let’s hope we can transition away from JobKeeper and tenancy protections with minimal harm and that the economy and business leaders have the stamina to take over where the government must now bow out.
